RBI Data Shows Worsening Distress In The Farming Sector Yet Farmers Are Better Borrowers Than Corporates

RBI data reveals that even though the farming sector saw a rise in bad loans, farmers are still better borrowers than the non-priority sector, mainly corporates and infrastructure borrowers.

The data shows that Rs 11,400-crore spike in bad loans of agriculture in fiscal 2017 to cross Rs 60,000 crore, partly because of demonetisation and GST. Still, the farmer’s total outstanding default stood at 6% as against the 23.83% of the corporates and infrastructure borrowers. Farm sector bad loans constitute 8.3% of the total banking sector NPAs of Rs 728,500 crore as of March 2017.

According to the RBI data, agriculture NPAs rose over 23% from Rs 48,800 crore in 2016 to Rs 60,200 crore in 2017. Bad loans in the agriculture sector have jumped to 142.74% from Rs 24,800 crore in fiscal 2012, indicating distress in the segment in the last five years. Significantly, while the four years — from 2012 to 2016 — showed defaults of Rs 24,000 crore, the maximum default took place in 2017, as reported by The Indian Express.

Another reason for the increase in bad loans is the increasing loan waivers by the state governments. An RBI source talking to The Indian Express suggested that the hope of loan waivers made farmers default on loans more. 


Urjit Patel Says

Urjit Patel, the RBI governor mentioned that the impact of loan waiver would show itself in the balance sheet of lending institutions, finances of states and interest rates. “Beginning with Tamil Nadu in 2016, domino effects have spread in 2017 to several states and the total cost of loan waivers announced amounts to around Rs 130,000 crore (0.8 percent of GDP),” Patel said.

“There are several conceptual issues… I think it undermines an honest credit culture. It impacts credit discipline. It plugs incentives for future borrowers to repay. In other words, waivers engender moral hazard,” he further added.


The post RBI Data Shows Worsening Distress In The Farming Sector Yet Farmers Are Better Borrowers Than Corporates appeared first on The Logical Indian.


Source: thelogicalindian.com

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